Thursday, March 8, 2012

Are bank properties worth the risk?

A couple of weeks ago, while teaching a real estate online auction
class in Mankato, MN, I met a successful auctioneer from Chicago who has
been in the business for over 20 years. He does FDIC auctions of
personal property as well as real estate auctions.

He shared a
story with me about his first opportunity to auction a group of 100
bank owned homes in the Chicago area. The bank would not give him a
penny for marketing/advertising and ALL of the properties would be sold
with reserves.

He knew the auction would require at least $100,000
in marketing to make it successful and after giving it some thought he
took the chance. He put his own $100,000 up for the marketing and
prayed that the bank would have reasonable reserves and the properties
would sell. Fortunately, it was very successful and he made over
$600,000 on the deal (not a bad return on his investment).

The same bank offered him more properties to
auction, but this time in Detroit. Unfortunately, this time he learned
a hard lesson by losing money (essentially paying to auction those
properties). Detroit is a much different market than Chicago and a lot
tougher.

I was surprised to find out that the banks are unwilling to
pay any marketing money, but I can also understand why. It was very
interesting for me to think about this opportunity and wonder if I would
put up that kind of money if given the same chance. The bank has zero
risk and the auctioneer has it all.

One of the big things you are advised in auction school is to not pay for the marketing out of your pocket.

About Tom Wood

I'm a real estate broker & online real estate auction expert in St. Louis, MO. I'm also the co-founder of Real Estate Auction Systems which is an online real estate auction system & service which we sell to real estate agents and auctioneers.
We have an Enterprise version of our auction system for auctioneers, Realtors and anyone else who wants their own private branded online real estate auction system. For more details on our Enterprise version visit our info and demo site